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Commission Regulation
(EC) No 2236/2004 of 29 December 2004 amending
Regulation (EC) No 1725/2003 adopting certain
international accounting standards in accordance with
Regulation (EC) No 1606/2002 of the European Parliament
and of the Council as regards International Financial
Reporting Standards (IFRSs) Nos 1, 3 to 5, International
Accounting Standards (IASs) Nos 1, 10, 12, 14, 16 to 19,
22, 27, 28, 31 to 41 and the interpretations by the
Standard Interpretation Committee (SIC) Nos 9, 22, 28
and 32
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Goodwill
Allocating goodwill to
cash-generating units
80. For the purpose of impairment testing, goodwill acquired
in a business combination shall, from the acquisition date,
be allocated to each of the acquirer’s cash-generating
units, or groups of cash-generating units, that are expected
to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities of the
acquiree are assigned to those units or groups of units.
Each unit or group of units to which the goodwill is so
allocated shall:
(a) represent the lowest
level within the entity at which the goodwill is
monitored for internal management purposes; and
(b) not be larger than a segment based on either the
entity’s primary or the entity’s secondary reporting
format determined in accordance with IAS 14
Segment Reporting.
81. Goodwill acquired in a business combination represents a
payment made by an acquirer in anticipation of future
economic benefits from assets that are not capable of being
individually identified and separately recognised. Goodwill
does not generate cash flows independently of other assets
or groups of assets, and often contributes to the cash flows
of multiple cash-generating units. Goodwill sometimes cannot
be allocated on a non-arbitrary basis to individual
cash generating units, but only to groups of cash-generating
units. As a result, the lowest level within the entity at
which the goodwill is monitored for internal management
purposes sometimes comprises a number of cash-generating
units to which the goodwill relates, but to which it cannot
be allocated. References in paragraphs 83-99 to a
cash-generating unit to which goodwill is allocated should
be read as references also to a group of cash-generating
units to which goodwill is allocated.
82. Applying the requirements in paragraph 80 results in
goodwill being tested for impairment at a level that
reflects the way an entity manages its operations and with
which the goodwill would naturally be associated. Therefore,
the development of additional reporting systems is typically
not necessary.
83. A cash-generating unit to which goodwill is allocated
for the purpose of impairment testing may not coincide with
the level at which goodwill is allocated in accordance with
IAS 21 The Effects of Changes in Foreign Exchange Rates
for the purpose of measuring foreign currency gains and
losses. For example, if an entity is required by IAS 21 to
allocate goodwill to relatively low levels for the purpose
of measuring foreign currency gains and losses, it is not
required to test the goodwill for impairment at that same
level unless it also monitors the goodwill at that level for
internal management purposes.
84. If the initial allocation of goodwill acquired in a
business combination cannot be completed before the end of
the annual period in which the business combination is
effected, that initial allocation shall be completed before
the end of the first annual period beginning after the
acquisition date.
85. In accordance with IFRS 3 Business Combinations,
if the initial accounting for a business combination can be
determined only provisionally by the end of the period in
which the combination is effected, the acquirer:
(a) accounts for the
combination using those provisional values; and
(b) recognises any
adjustments to those provisional values as a result of
completing the initial accounting within twelve months
of the acquisition date. In such circumstances, it might
also not be possible to complete the initial allocation
of the goodwill acquired in the combination before the
end of the annual period in which the combination is
effected. When this is the case, the entity discloses
the information required by paragraph 133.
86. If goodwill has been allocated to a cash-generating unit
and the entity disposes of an operation within that unit,
the goodwill associated with the operation disposed of shall
be:
(a) included in the
carrying amount of the operation when determining the
gain or loss on disposal; and
(b) measured on the
basis of the relative values of the operation disposed
of and the portion of the cash-generating unit retained,
unless the entity can demonstrate that some other method
better reflects the goodwill associated with the
operation disposed of.
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Example
An entity sells
for CU100 an operation that was part of a
cash-generating unit to which goodwill has been
allocated. The goodwill allocated to the unit cannot be
identified or associated with an asset group at a level
lower than that unit, except arbitrarily. The
recoverable amount of the portion of the cash-generating
unit retained is CU300.
Because the
goodwill allocated to the cash-generating unit cannot be
non-arbitrarily identified or associated with an asset
group at a level lower than that unit, the goodwill
associated with the operation disposed of is measured on
the basis of the relative values of the operation
disposed of and the portion of the unit retained.
Therefore, 25 per cent of the goodwill allocated to the
cash-generating unit is included in the carrying amount
of the operation that is sold.
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